Posen: central banks should up bond buys

 
Julian Harris
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THE EUROPEAN Central Bank (ECB) upped its purchases of peripheral Eurozone debt last week, but bought less than many analysts expected.

The ECB announced that it bought €7.986bn (£6.888bn) in the week to 18 November.

With the single currency area’s government debt crisis rolling on, the ECB now holds €194.5bn of debt.

Yet dovish Bank of England official Adam Posen yesterday called for the ECB, and the Federal Reserve in America, to splash out on government bonds in a bid to stimulate the recovery.

“They should buy significant quantities of government securities to help push down long term interest rates and encourage investment,” Posen said in the International Herald Tribune.

“In my opinion we can go further,” he added. “Central banks and governments can engage in forms of coordinated action that will target the burden of past debts that is hanging over the global economy.”

Posen, an American academic on the Bank of England’s Monetary Policy Committee, has long called for more quantitative easing in the UK.

Senior official Ewald Nowotny said the ECB would not start printing more money, however. “In this simple form, of course not,” he said, although admitted that the role of the ECB was under discussion.

Posen’s advice could not have contrasted more sharply with a vicious attack on the “toxic” debt-buying by German conservative Alexander Dobrindt at the weekend.

“I find it dubious that the [ECB] is always buying new sovereign bonds from indebted states,” he said.

“He who covers himself with rotting paper eventually ends up with a toxic shock,” added Dobrindt, whose party is the Bavarian variant of Chancellor Angela Merkel’s Christian Democrats and one of three in her centre-right coalition.